Does Congress raid Social Security?

401(K) 2012/Flickr

(MoneyWatch) Since we're in political sound-bite season, let's address a misconception that's often repeated by pundits and political candidates alike: Congress raided the Social Security trust fund and spent it on their own pork-barrel projects.

The truth is that in prior years, Social Security taxes collected from workers added up to more than the amount of benefits paid to retirees. This buildup of surplus was intentional -- the government wanted to build a reserve that would cover the benefits of the baby boomers. This surplus has been invested in special U.S. government bonds that are legally obligated to pay the stated rate of interest, and then repay the principal when they mature, according to the terms of the bonds.

These special bonds are just part of the funding of the overall federal government, and the assets in the Social Security trust fund represent about 15 percent of the government's total debt. This process has taken place in full view of anybody who cared to learn about it. There have been no smoke-filled rooms where politicians sat around divvying up the earmarked money in the Social Security trust to finance their pet projects.

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So did Congress spend our Social Security taxes? Of course. They spent this money on all the various operations of the federal government, with a large chunk going to pay for Social Security benefits, Medicare and the military. Some people get worked up when they hear about the obscure projects that they deem to be worthless, but such spending represents a tiny fraction of the overall federal budget.

Should we care that Congress spent the money? No! When you buy any investment, like a stock or a bond, the entity that issues it usually spends the money you paid for that stock or bond. When you buy a corporate bond, for instance, the issuing corporation spends the money on equipment, advertising, computers, salaries and any aspect of the business that needs money. The same goes when you buy newly issued stock of a corporation -- it spends the money on the business. If you invest in state and local government bonds, these governing entities spend the proceeds on roads, sewers, salaries and the general operations of the government that issues the bond.

If the Social Security trust fund invested in something other than U.S. bonds, what would it invest in and where would the money go? If it invested in corporate stocks or bonds, the money would get spent, as noted above. If it invested in the bonds of state and local governments, the money would also get spent. And if the government owned too large a slice of U.S. corporations' stocks and bonds, you might call it socialism.

What any bond investor should really be concerned about is the ability of the issuing entity, whether a corporation or government, to pay the stated rate of interest and repay the principal when it matures. With the special U.S. government bonds held by the Social Security trust fund, we should be concerned whether future taxpayers can make good on the interest and principal payments when they come due, or if future bonds can be sold to pay the principal of the maturing bonds.

If the federal debt were at much lower levels, we probably wouldn't pay much attention to statements that "Congress raided the Social Security trust fund." In fact, the Social Security trust fund has been buying the special U.S. government bonds for decades, but only recently have we heard more about so-called "raids."

If the federal debt gets too big, then we might indeed be justified in worrying about the ability of future taxpayers to make good on the special bonds in the Social Security trust fund. So the real issue is the growing level of overall federal debt and whether it can be repaid by future taxpayers. Spreading misleading claims about Congress raiding the Social Security trust fund and spending our taxes just distracts everybody from the real issues. Our leaders need to focus on reducing the budget deficit by reducing spending and raising taxes, so we can feel more confident that those U.S. government bonds will be repaid.

[africanwarrior]

One can manipulate the percentages, spew the ridiculous party rhetoric, tax every American at a 100% rate, unjustly cut citizen funded entitlements in half before unfunded entitlements, or even pass a balanced budget amendment, and this debt still could never be repaid.

The only hope to erase the current debt would be for Congress to take back its constitutional control of issuing the nations money.

Then, and only then can the government fund itself with interest free assets. Agreed, the amount of out of control spending would not stop without a balanced budget, the only difference would be that we would not be paying in excess of 225 billion dollars and growing every year, in interest to the elite 1% of the proverbial 1%.

The collapse of 2007/2008 ranks as an infinitely distant 2ND when it comes to the greatest swindle the world has ever witnessed, that perpetrated by the Federal Government (Democrat and Republican) in collusion with the ULTRA-WEALTHY that own all the shares in the Federal Reserve.

Even the money used to bailout these banks was borrowed from the same banks at interest to be repaid by the indenturing of all of our children to come. Every child yet to immigrate or be born in America, will be born into the unconstitutional indentured servitude of repaying their ancestors debts to all the wealthiest 1% of the 1%'s children.

The American people fund the general oversight, and or; physical printing of our nations fiat currency, then our government gives that money and the authority to create all they wish, to a group of private held banks (FED), which are owned by the nations wealthiest; at no charge.

Then that private corporation of banks turns around and loans back, at a variable interest rate set by them; that which the people gave them for FREE to begin with. With the true irony being that they can then at their own discretion tax the American people by controlling inflation rates, and cannot even be held accountable by the very Congress that gave them their issuing & hidden taxing authority.

Whoever controls a nations issuance of money controls that nation, everyone else serves as nothing more than their puppets.

If the government had converted our trust funds into shares in the FED, no trust would be at risk of insolvency for eternity. So enough with trying to justify the crimes this government has perpetrated and continues to perpetrate on all Americans; past, present, and future with such nonsensical rhetoric.

[ricklawson]

Interesting logic in that article.The heads of government passed a law forceing SSA to buy a bond for most of the excess funds in the SSA trust fund.The bonds can only be redeemed by the us gov.The 5% set interest rate paid out on those "loans"are "TAXPAYER" dollars ,the same people the gov.took the funds from.In other words you force taxpayers to loan you their savings,You hold the note,You use their tax dollars to pay the interest on the note.?Now that the bonds have come due SSA is in serious trouble for every reason but the correct one.If the excess in the trust fund more than covered the pay outs to its investors.The heads of gov schould have never touched that trust fund.They did the math 70 years ago.The sad thing is,the gov.is still to this day pulling funds from a going broke trust fund and the way to save it is to divert even more tax dollars to the cause of the problem.Disgusting.The taxpayer is nothing but a "CASHCOW" for heads of gov.The taxpayer can fix the problem.Demand the heads of gov. leave their greedy hands of the trust fund and when the taxpayers fall off the fiscal cliff let the heads of gov.fall to.No more full pension for life,no more full medical coverage for life no more free tax payer dollars for the untouchables.When they took their oath to serve,they betrayed that oath the day after their election.

[Counselor12]

Treasury Bonds are NOT "junk bonds." "Junk bonds" refers to private corporate bonds that pay high interest because there is great risk of default. There is no risk of default with U.S. Treasuries, only of delay by Republican obstruction by refusing to raised the debt ceiling. The Treasury and Federal Reserve came up with at least $7.7 trillion to help the banks. The U.S. has currency sovereignty, can create its own money (unlike Greece, etc.) The Treasury auctions its bonds several times per quarter, to roll over, refinance the debt, and even now, at extremely low interest, it gets bids, including from foreign banks for 2 or 3 times the amount in $billions more that are offered.

[Sceptic46]

This article misses the point. Who would Congress invest in? If they invested in the open market then they would choose something other than junk bonds. because that is what they habve given the SS Trust Fund. The govt doesn't have enough money to repay the Iou's. We have let Congess do this since Lyndon JUohnson. Only now have we come to see how we have been conned by our elected leaders.

[MatthewHerren]

In fact, the Social Security trust fund has been buying the special U.S. government bonds for decades, but only recently have we heard more about so-called "raids."

If by "only recently" you mean for the last 12-16 years... then perhaps.

[Uncle_D_Florida]

The federal debts is too big RIGHT NOW-at 14 Trillion dollars or so. The military spends a Trillion dollars of taxpayer money every two years(about $500 billion a year is given to them by congress) if event 10% of this is wastes and fraud that is $100 billion dollars wasted every two years...
Romney/Ryan want to give more money to defense, and cut Social Security/Medicare benefits. Ryan says os right up front,and honestly.An easy way is to do away with the cost of living increase seniors get.

[dlackey2]

Steve---

US government treasury bonds have outperformed the stock market for quite a while now.

Have the special US government bonds owned by Social Security also turned out to be a good investment. Can one compare these special bonds with ordinary Treasuries?

[jrgebert]

The social security surpluses in the past were used to fund the government.
If taxes were higher the government would not have to borrow so much from China and other sources. Our national debt would be lower and it would be more likely that we could pay off the special social security bonds.

[tudognight]

15% of national debt is owned by Social Security....not a big number? All Chinese investment is only 8%k. So ask: It is easier to cancel out social security payments or cancel out China debt? China cannot be fooled, while the public can be dazzled by the dance done by Robme and Ryan!